Scoring your Credit - How's your FICO?
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number.
Credit reporting agencies use your history of paying loans in order to build this score.
Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following to build a score:
- Credit History - How many years have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks who want to get a mortgage loan have a score above 620.
Credit scores make a difference in your interest rate
FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my FICO score?
What can you do to improve your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.
Getting your credit score
To improve your FICO score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Call us: 305-967-7200.